More math = less sales

A sales person that used to work for me called me last week to get my opinion on a new position he was considering. We chatted for a while about the position and the opportunity, and I was very excited for him. Its a great company, a great product, a great team – and I think it will afford him quite a bit of opportunity to advance his career.

Then we started to figure out if the comp was right for him.

He explained to me the compensation plan that was presented to him. As he spoke, I said, “wait… I have to get a pen and write this down so I understand.” OK – the fact that I had to say this is 100% a clear indication that this is a bad compensation plan – but nonetheless I attempted to understand the plan. The plan paid out upon a rolling average of monthly sales over a three month period and provided incentives on this and that.

After I thought about the plan for a while, I said, “OK. I get it and from my calculations, its most likely a very generous plan – but its sort of hard to tell – and its going to be very hard to know what you will get until the end of each quarter.”

I certainly appreciate that the CEO of this company was trying to create a generous compensation plan, and I honestly think that he believes that he is encouraging the right behavior but the problem with the comp plan is two fold.

1) It is so hard to calculate and know what you are getting paid on each deal – that the sales rep will spend too much time thinking about what he will or wont get paid instead of just focusing on closing.

2) By making the plan based on a rolling average, the “cha-ching” factor after a deal is closed is gone. When a deal is closed, what does it mean to the rep? Who knows until the end of the quarter so its not as exciting when a deal closes.

Here is my bottom line on comp plans. Make them simple and easy to calculate. Give me a cha-ching when I close that is very clear what I get and when I get it. This will motivate me to close more and faster. I see something I want to buy? How do I do it? Close a deal at this amount and I will get enough to buy it. Want to make more money than that other salesperson. How? Close deals totalling X to get there. This is how we think.

The more time I have to spend on math, the less time I spend on closing. The more time I’m wondering about what I get paid, the less likely I am to close it. When I don’t know what its worth to me personally – I have less drive to bring it home.

Perhaps these sound like strange concepts to non-sales types, but this is what motivates us. The hunt. Make it like a hunt and we will hunt it down. Make it like a complex problem with too many goals and triggers and we will be less motivated and driven.

I think that my guy will do well in this role, and I actually think he will make quite a bit of money. I also think he has the drive to succeed in this position regardless, but in general, I think that this comp plan should be tossed out and replaced with something simple that provides cash directly tied to an action.